PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: JOHN G. MCCORMICK, 

Debtor.

SUNTRUST BANK, N.A.,

Plaintiff-Appellant,

v.

MARC MACKY; MARYANN MACKY,

Plaintiffs-Appellees,  No. 10-2027

v.

JOHN A. NORTHEN, Trustee,

Defendant-Appellee,

and

MICHAEL D. WEST, Bankruptcy

Administrator,

Party-in-Interest. 

Appeal from the United States District Court

for the Middle District of North Carolina, at Greensboro.

Thomas D. Schroeder, District Judge.

(1:09-cv-00924-TDS)

Argued: December 7, 2011

Decided: February 10, 2012
Before NIEMEYER, AGEE, and WYNN, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the

opinion, in which Judge Agee and Judge Wynn joined.

COUNSEL

ARGUED: Christopher Charles Finan, ROBERSON,

HAWORTH & REESE, High Point, North Carolina, for

Appellant. David Rooks, III, NORTHEN BLUE, LLP, Chapel

Hill, North Carolina; Robert Nelson Maitland, II, MAITLAND LAW FIRM, Chapel Hill, North Carolina, for Appellees. ON BRIEF: Joseph Jude Vonnegut, HUTCHENS,

SENTER & BRITTON, Fayetteville, North Carolina, for

Appellant.

OPINION

NIEMEYER, Circuit Judge:

In this bankruptcy case, in which John McCormick is the

debtor, SunTrust Bank, N.A., filed a proof of claim for repayment of a loan that it claimed was secured by a deed of trust

on two contiguous parcels of McCormick’s real property in

Orange County, North Carolina, known as "Tract I" and

"Tract II." The Trustee commenced this action under 11

U.S.C. § 544(a)(3) to avoid the lien on Tract I because the

deed of trust, while recorded on the official recordation index

of Orange County as to Tract II, was not so recorded as to

Tract I.

SunTrust contended that even though the recordation was

deficient, the Trustee was imputed with constructive knowl2 IN RE MCCORMICK
edge of the lien on Tract I because either (1) he had constructive knowledge of the deed of trust that was properly recorded

as to Tract II, which by its terms also created a lien on Tract

I; or (2) the deed of trust was recorded in an unofficial index

in Orange County and a careful and prudent title examiner

would have found the lien on Tract I in that index.

The bankruptcy court rejected SunTrust’s arguments and

ordered SunTrust’s lien on Tract I avoided under § 544(a)(3),

and the district court affirmed. We too affirm. Because the

Trustee’s status vis-a-vis the title of Tract I is, under

§ 544(a)(3), that of a bona fide purchaser under North Carolina law, the Trustee is only imputed with the notice that

would be imputed to a bona fide purchaser of Tract I under

North Carolina law. And North Carolina law allows a purchaser to rely exclusively on the official recordation index of

the county to discover liens, regardless of what other independent knowledge that purchaser might have.

I

In 1994, John McCormick and his wife acquired two contiguous parcels of real property in Orange County, North

Carolina—"Tract I," consisting of six lots, and "Tract II,"

consisting of two lots. The deed for both tracts was properly

recorded on January 5, 1995, on the PIN (parcel identifier

number) index in Orange County. The PIN index, which is the

County’s official real property recording index, was adopted

by Orange County in 1983 as the official index in lieu of its

previous grantor/grantee index system used by the County

before 1983. Under the PIN index system, each parcel of real

property in the county is given a unique "parcel identifier

number," which is then used as the basis for recording all

instruments relating to that parcel. Orange County continued

to use the traditional grantor/grantee index system, but it did

so only as an unofficial index on which to record instruments

on an interim basis for the period between when the instruIN RE MCCORMICK 3
ment is offered for recordation and when its recordation on

the PIN index is certified, usually a few days.

In 1999, the McCormicks borrowed $178,275 from Central

Carolina Bank and Trust Company (later merged into SunTrust Bank, N.A.) (herein, "SunTrust"), and they secured the

loan with a deed of trust given as to both Tracts I and II.

When submitted for recordation, however, the deed of trust

included only the PIN number of Tract II and not the PIN

number for Tract I. Accordingly, it was recorded only on the

PIN index against Tract II.

In 2004, John McCormick borrowed $60,000 from Marc

and Maryann Macky, and he secured that loan with a deed of

trust on four lots (lots 1, 4, 5, and 6) in Tract I. That deed of

trust was properly recorded on the PIN index in Orange

County.

McCormick was placed into involuntary bankruptcy in

August 2006, and John Northen was appointed Trustee of the

bankruptcy estate. In administering the estate, Northen sold

all of the lots in Tract I and transferred the liens recorded

against Tract I to Tract I’s proceeds of sale. He thereafter

commenced this adversary proceeding under 11 U.S.C.

§ 544(a)(3) to avoid SunTrust’s 1999 lien claimed by SunTrust against the proceeds, because the lien against Tract I

had not been properly recorded on the PIN index and, as the

parties agreed, a search of the PIN index as to Tract I on the

date of the bankruptcy petition would not have disclosed the

existence of SunTrust’s 1999 deed of trust on Tract I. The

Mackys, whose lien for $60,000 was created in 2004 (after

SunTrust’s 1999 lien), supported the Trustee’s position,

which would benefit the Mackys’ lien by avoiding SunTrust’s

prior but improperly recorded lien.

In response to the Trustee’s motion for summary judgment,

SunTrust argued that even though its 1999 deed of trust was

not recorded on the PIN index against Tract I, "a competent

4 IN RE MCCORMICK
title searcher, upon examining the deed of trust for Tract II,

would have discovered Tract I as a result of such examination," because the text of the deed of trust created liens on

both Tracts I and II. SunTrust also argued that a search of the

unofficial grantor/grantee index would have "revealed the

existence of the SunTrust Deed of Trust as a lien against both

Tracts I and II."

The bankruptcy court rejected SunTrust’s arguments,

observing that North Carolina is a "pure race" jurisdiction

such that "the first to record an interest in land holds an interest superior to all other purchasers for value, regardless of

actual or constructive notice as to any unrecorded conveyances." The court concluded that North Carolina’s "Indexing

Statutes indicate a legislative intent to require that when a

county has adopted a PIN index as its official index, an instrument must be indexed in such an official index in order to be

registered." Thus, "where, as is the case in Orange County, a

county has implemented a PIN index that complies with the

requirements of N.C. Gen. Stat. § 161-22.2, such a PIN index

is the only index that is required by statute to be maintained.

. . . [T]he result is that when a county adopts a PIN index as

its official index, an instrument must be indexed as provided

for in N.C. Gen. Stat. § 161-22.2 in order to be registered."

Accordingly, based on N.C. Gen. Stat. § 47-20(a) and 11

U.S.C. § 544(a), the court avoided SunTrust’s lien against

Tract I.

On appeal, the district court affirmed for substantially the

same reasons given by the bankruptcy court, entering judgment dated August 6, 2010, in favor of the Trustee and the

Mackys. This appeal followed.

II

SunTrust acknowledges that its 1999 deed of trust on Tract

I was not recorded against Tract I on the PIN index as of

August 2006, when the bankruptcy petition was filed. It also

IN RE MCCORMICK 5
acknowledges that the PIN index was the official index on

which to record real property instruments in Orange County,

and that a title search of Tract I in the PIN index in August

2006 would not have disclosed its deed of trust. It argues

nonetheless that the Trustee cannot avoid its 1999 lien on

Tract I, relying on two facts: (1) the deed of trust was

recorded on the PIN index in connection with Tract II, and

anyone searching the title to Tract II would have seen the

deed of trust, which, by its terms, creates a lien also on Tract

I; and (2) the deed of trust was recorded in the grantor/grantee

index, and the lien on Tract I would have been discovered by

a search of that index. Accordingly, it contends that a bona

fide purchaser would have had constructive notice of its lien

on Tract I, and the Trustee, who stands in the shoes of a bona

fide purchaser, would have been imputed with the same

notice.

The Trustee agrees that he stands in the shoes of a bona

fide purchaser at the time the bankruptcy petition was filed.

But he argues that a bona fide purchaser of Tract I at that time

would not have purchased Tract I subject to SunTrust’s 1999

lien, regardless of the knowledge imputed to the purchaser,

because the lien was not recorded in the official recordation

index in Orange County—the PIN index.

The Trustee’s authority to avoid liens arises from 11 U.S.C.

§ 544(a)(3), which provides:

The trustee shall have, as of the commencement of

the case, and without regard to any knowledge of the

trustee or of any creditor, the rights and powers of,

or may avoid any transfer of property of the debtor

or any obligation incurred by the debtor that is voidable by—

* * *

(3) a bona fide purchaser of real property . . . from

the debtor, against whom applicable law per6 IN RE MCCORMICK
mits such transfer to be perfected, that obtains

the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a

purchaser exists.

(Emphasis added). Thus, when determining whether a Trustee

can avoid a lien created before the bankruptcy petition was

filed, the Trustee’s actual knowledge of the lien is irrelevant.

His right to avoid is determined by whether, under state law,

a bona fide purchaser of the property would have taken the

property subject to the lien. If a bona fide purchaser would not

have taken it subject to the lien, then neither would the

Trustee. See Havee v. Belk, 775 F.2d 1209, 1218 (4th Cir.

1985) (explaining that 11 U.S.C. § 544 "gives the Trustee the

status of a hypothetical lien creditor . . . but . . . his exercise

of such power and its extent are governed entirely by the

applicable state law"). In this case, therefore, the Trustee’s

right to avoid SunTrust’s lien on Tract I turns on whether a

bona fide purchaser of Tract I in August 2006 would, under

North Carolina law, have acquired the property free of the

lien.

North Carolina law has established a precise recording system on which purchasers of real property can rely when

searching for the existence of prior liens. If a prior lien is not

properly recorded in accordance with the system, then the

purchaser can count on taking property as if no lien exists,

even though the purchaser may have knowledge that an earlier lien had been created. See Hill v. Pinelawn Mem’l Park,

Inc., 282 S.E.2d 779, 782 (N.C. 1981). Manifesting this

understanding, North Carolina law provides categorically that

"instruments registered in the office of the register of deeds

shall have priority based on the order of registration as determined by the time of registration." N.C. Gen. Stat. § 47-20(a).

The North Carolina Supreme Court has articulated the full

implication of the rule, as well as its rationale, as follows:

IN RE MCCORMICK 7
The purpose of [the recording statute] is to enable

intending purchasers and encumbrancers to rely with

safety on the public record concerning the status of

land titles. It serves to provide constructive notice of

claims to real property. It has been characterized as

a pure race statute. Where a grantor conveys the

same property to two different purchasers, the first

purchaser to record his deed wins the race to the

Register of Deeds’ office and thereby defeats the

other’s claim to the property, even if he has actual

notice of the conveyance to the other purchaser.

Thus, in order to protect himself against the possibility that his grantor has conveyed the same property

to another, a purchaser must examine the public registry. If he finds no record of such, even if he knows

there has been a prior conveyance, he may record

his deed with the assurance that his title will prevail.

Hill, 282 S.E.2d at 782 (emphasis added) (citations and internal quotation marks omitted). In short, the recordation of real

property instruments in North Carolina on the appropriate

recording index is a "cook-book" process that, when followed,

gives the only enforceable notice to subsequent purchasers of

the instrument, thereby assuring such purchasers that the status of title is as appears on the index, regardless of that purchasers’ knowledge about matters not appearing on the index.

North Carolina authorizes counties in North Carolina to

select one of two methods for indexing real property

instruments—either the traditional "grantor/grantee index"

system or the PIN index system. N.C. Gen. Stat. § 161-22(a),

161-22.2(a). Section 161-22.2(a) provides that the PIN index

system, if selected, would be "[i]n lieu of" the grantor/grantee

index system, such that either one or the other index would be

the official recordation index, but not both.

In 1983, Orange County elected to adopt the PIN index system in lieu of the grantor/grantee index, and by county ordi8 IN RE MCCORMICK
nance, the Register of Deeds in Orange County is instructed

"not [to] accept for registration any . . . instrument containing

a description of the real property affected by the instrument

unless the parcel identifier numbers of all parcels affected

have been assigned and written on the instrument by the

County Land Records Office." Orange County, N.C., Code of

Ordinances § 22.2(b). In practice, Orange County has retained

the grantor/grantee index as an unofficial index to be used for

the few days between when an instrument is offered for recordation and when the certificate of registration on the PIN

index issues. But the official index remains the PIN index.*

In this case, McCormick borrowed $178,275 in 1999 from

SunTrust, giving SunTrust a deed of trust creating a lien on

both Tracts I and II. At the time of recordation, however, only

the parcel identifier number for Tract II was placed on the

instrument, and accordingly it was recorded on the PIN index

only against Tract II. The 1999 deed of trust did not appear

in the PIN index chain of title for Tract I.

SunTrust argues nonetheless that because the Trustee is

imputed with notice of the status of title with respect to all

real property in the bankruptcy estate and both Tract I and

Tract II were part of the bankruptcy estate, he had constructive notice that the deed of trust created a lien on both Tract

I and Tract II, even though recorded only against Tract II. It

asserts, "The Trustee is incapable of claiming entitlement to

the status of a [bona fide purchaser] under 11 U.S.C. § 544(a)

as to Tract I because his duty to have examined title to Tract

II (as of the Petition Date) would admittedly have revealed the

*While we have not found a North Carolina case addressing precisely

the interplay between a PIN index as the official index and a grantor/grantee index as the unofficial index, especially when an instrument is

recorded only on the unofficial index, North Carolina law likewise does

not provide a mechanism by which we could certify the question to North

Carolina’s Supreme Court, unlike the law in the other States in the circuit.

See MLC Automotive, LLC v. Town of Southern Pines, 532 F.3d 269, 284

(4th Cir. 2008). 

IN RE MCCORMICK 9
existence of the SunTrust deed of trust and, thus, its valid lien

upon both Tracts I and II." In making this argument, however,

SunTrust blurs the distinction between the notice given by a

properly recorded lien and notice derived from other sources.

It also bypasses the limitation that a trustee’s notice is limited

to that imputed to a bona fide purchaser.

First, under § 544, the Trustee is imputed with only the

knowledge imputable to a bona fide purchaser, "without

regard to any knowledge of the trustee." 11 U.S.C.

§ 544(a)(3) (emphasis added). Accordingly, SunTrust’s

efforts to impute knowledge to the Trustee of its 1999 lien

through his role as Trustee of the bankruptcy estate must fail

except to the extent that a bona fide purchaser is imputed with

knowledge.

Second, a bona fide purchaser of Tract I would have no reason to examine the title to Tract II, as might the Trustee, and

thus cannot be imputed with knowledge of the status of title

other than as appears with respect to Tract I. And as the parties agree, a search of title as to Tract I would not have disclosed the SunTrust lien.

Third and most importantly, the simple knowledge of the

deed of trust’s application to Tract I is irrelevant under North

Carolina law. Under North Carolina law, a person seeking to

encumber property with an enforceable lien must record the

lien against that property in the official index such that a purchaser looking at that index would discover the lien. As the

North Carolina courts have pointed out, a purchaser looking

at that index can rely on the fact that no lien exists as to the

parcel if it does not appear on the index, even "if [the purchaser] has actual notice" of the lien. See Hill, 282 S.E.2d at

782. A lien becomes enforceable against a purchaser only by

recording the lien against the property on the official index,

not by imputing knowledge to the purchaser through some

other source or mechanism. See Turner v. Glenn, 18 S.E.2d

197, 201 (N.C. 1942) ("[I]t has become axiomatic with us that

10 IN RE MCCORMICK
no notice, however full and formal, will take the place of registration" (internal quotation marks omitted)). Indeed, under

North Carolina law, compliance with North Carolina’s real

property recording system is the only way to provide constructive notice of a lien to subsequent purchasers. See Cuthrell v. Camden Cnty., 118 S.E.2d 601, 603 (N.C. 1961) ("In

order for a recordation to be effective as notice there must be

a substantial compliance with the indexing statutes").

Because a bona fide purchaser of Tract I would not, at the

time of the bankruptcy petition, be imputed with knowledge

of SunTrust’s 1999 lien because it did not appear on the PIN

index for Tract I, the purchaser would not have taken the

property from the debtor subject to a preexisting lien not so

recorded, even if the purchaser had knowledge of the lien.

Because the Trustee simply stands in the same shoes as the

bona fide purchaser, he likewise is not imputed with knowledge of SunTrust’s prior lien on Tract I.

SunTrust argues that in any event its deed of trust substantially complied with North Carolina’s indexing system in that

SunTrust recorded its lien "in the proper county, with the

proper legal descriptions, was properly indexed as to both

Tracts I and II under Orange County’s grantor/grantee index,

and was properly indexed under the PIN system as to Tract

II. Additionally, the legal description for both Tracts I and II

appear on the same page of the SunTrust deed of trust." It

maintains that any careful and prudent title examiner would

have discovered its lien on Tract I, either by examining the

title to Tract II or by looking at the grantor/grantee index.

While North Carolina recognizes substantial compliance

with a recording requirement, see Cuthrell, 118 S.E.2d at 603,

SunTrust cannot demonstrate that it substantially complied, or

complied to any extent, with Orange County’s requirement to

record its lien on Tract I in the PIN index. That requirement

demands that a deed of trust, to be effective against a parcel

of real property, be recorded in the PIN index for that parcel.

IN RE MCCORMICK 11
Concededly, SunTrust never recorded the deed of trust in any

manner on the PIN index for Tract I.

North Carolina law is clear that when a county elects to use

a PIN index system, it does so "[i]n lieu of" the grantor/grantee index system, N.C. Gen. Stat. § 161-22.2(a), and

upon doing so that index becomes "the official real property

index" for the county, id. § 161-22.2(e). We would effectively

be laying waste to North Carolina’s recordation system if we

were to conclude that recording a deed of trust on some unofficial index, not the official index, amounted to substantial

compliance or that recording a deed of trust with respect to

the wrong parcel substantially complied with the recordation

requirements. As the North Carolina Supreme Court has

explained, "It is necessary in the progress of society, under

modern conditions, that there be one place where purchasers

may look and find the status of title to land." Turner, 18

S.E.2d at 200-01 (emphasis added). And SunTrust did not

record its lien at all in that "one place," much less in substantial compliance with the requirements.

Finally, SunTrust devotes a substantial effort to making the

distinct argument that any careful and prudent title examiner

would have discovered SunTrust’s lien, and therefore the

Trustee should be imputed with knowledge of what would

have been discovered. This argument, however, still gains

SunTrust no advantage. Again, the test under North Carolina

law is not whether a bona fide purchaser had knowledge of a

lien or whether the trustee in bankruptcy is imputed with

knowledge of a lien. Rather, the test is whether the lien was

recorded on the official index, and this test gives no effect to

the knowledge of the bona fide purchaser or the Trustee

acquired from some source other than the official index. See

Hill, 282 S.E.2d at 782.

At bottom, we conclude that because a bona fide purchaser

of Tract I in August 2006, when the bankruptcy petition was

filed, would not be charged with notice of SunTrust’s 1999

12 IN RE MCCORMICK
lien based on an examination of the PIN index in Orange

County, the Trustee likewise is not imputed with such knowledge. Therefore, the Trustee was properly allowed to avoid

the lien under 11 U.S.C. § 544(a)(3). The judgment of the district court is

AFFIRMED.

IN RE MCCORMICK 13